Virginia: A Safe Harbor for Federal Contractors

01 Aug, 2012

By David Hodes

Changes to come in the federal government and in budget adjustments for defense contracting are on the minds of economic developers in Virginia. “We recognize that we are very dependent on much of the income that is produced from those contractors and from the federal agencies that are based in Virginia,” says Liz Povar, director of business development for the Virginia Economic Development Partnership (VEDP). “We recognize the risk to Virginia as the federal government tries to determine where to have cutbacks. We want to be prepared to have identified those contracting entities that are growing and make sure that they understand where in Virginia that growth can occur at the most cost effective rate for them.”

Aside from defense contracting, there is a steady bright spot in the state’s economic development picture. Povar says that the most recent session of the Virginia general assembly approved a life sciences initiative, Amendment 11, called the Funding for the Virginia Life Sciences Initiative that provides $2.5 million each year of the biennium for a brand-new matching grant program to incentivize private entities, research institutions, foundations, and government agencies to conduct their biomedical research in Virginia. A new non-stock corporation will be formed to manage the initiative in collaboration with the VEDP and Virginia’s research universities.

That funding will enable the state to compete and form major corporate investments in point-of-care diagnostics and bioinformatics, which are two areas that the state excels in in large part due to their information technology platform, Povar says. “So using those dollars, our goal is to leverage the resources, such as the research in our universities, and connect them to those corporate clients who are interested in those particular spaces. We have world-class research going on in those two sectors and now we have some dollars to get the message out to market and ensure that our major corporations see us as a place to grow.”

Industries And Innovations

Povar says that there is a fairly robust emerging life sciences cluster principally around universities such as the Corporate Research Center in Virginia Tech, adjacent to the Virginia Tech campus in Blacksburg. The research park houses more than 140 high-tech companies and research centers that employ more than 2,200 people in 27 buildings totaling 956,000 square feet on 120 acres of land. Phase II total build-out is planned to be an additional 18 buildings totaling 870,000 square feet housing 3,000 employees during the next decade. “So we are trying to bring that research into commercialization,” Povar says. “And then at the other end of the spectrum, we are trying to use public dollars to marry major corporations with research assets in the state. So we think we have a strong story to tell.”

In the New River Valley area, Aric Bopp, executive director, New River Valley Economic Development Alliance in Radford, says that there is no single industry that really dominates and dictates the landscape. The area has witnessed the addition of a big warehouse fulfillment facility in Christiansburg recently by the Utah-based outdoor gear Internet retailer Backcountry.com, a fast-growing company that effectively quadrupled the size of their facility in 2005 and still needed more space. The warehouse is a more than 300,000-square-foot facility that will be bringing in several hundred jobs, Bopp says. “We hear about how bad the economy is and we are not entirely immune. But you drive around the area and there is construction going on and buildings being built and existing buildings expanding and new companies coming in. So we feel very fortunate to have our economy as strong as it is.”

The Richmond area economy is sailing smoothly as well with more of a global appeal. Economic development in the city is done by industry sector domestically, but has been focusing on international economic developments, says Greg Wingfield, president and CEO, Greater Richmond Partnership Inc. He says a fair amount of their budget and time is spent overseas in places such as Austria, Switzerland, Germany, Japan, China and India. There are 150 international companies doing business in greater Richmond, Wingfield says, employing about 13,000 people. “We will continue to do the European economic development as well as Asia,” Wingfield says. “But we are going to look at Brazil and Columbia in terms of new areas of interest for us this year.”

Just a two-hour drive south of Jamestown down the coast, Virginia Beach is not just the tourist mecca most people assume it to be. Scott Hall, business development coordinator for the Economic Development Department of the City of Virginia Beach, says that the city is one of the 40 largest cities in the country now, with a permanent population of about 1.7 million and a very strong defense industry presence.

The area is home to Fortune 500 companies such as Amerigroup Corp., a health care management company serving 2.2 million members in 12 states and growing in the area; Dollar Tree Inc., with its corporate headquarters in Chesapeake; and Smithfield Foods, a $13 billion global food company in Smithfield and one of the world’s largest producers and processors of pork.

Russell Seymour, director of the James City County Office of Economic Development in Williamsburg, says that the county has seen an expansion of business within their expanded enterprise zone program that since last August has resulted in the expansion of eight businesses with new capital investment of $7.4 million and the creation of 171 new local jobs. “A lot of our economic development focuses on new businesses in the area,” Seymour says. “But at the same time James City County takes a lot of pride in working with our existing businesses. And that’s why we expanded our enterprise zone program.”

Down to Business

Virginia continues to rank among America’s leading states for business by CNBC and Forbes.com. In each analysis, cost of doing business, quality of workforce, and regulatory environment all drove Virginia to the top.

Virginia ranks among the top 10 states best prepared to navigate the changing economy, in terms of being knowledge-based, globalized, entrepreneurial, IT-driven and innovation-based, according to the “2010 State New Economy Index” published by the Information Technology and Innovation Foundation and the Ewing Marion Kauffman Foundation.

In 2011, the average cost per unit of electricity for the industrial sector was 6.13 cents in Virginia, compared to 6.68 cents for the nation.

The state’s 6 percent corporate income tax rate has not been increased since 1972.

Virginia exported $18.11 billion of merchandise in 2011.

More than 700 internationally owned businesses from 45 countries are located in the Commonwealth.

Talent And Education

Povar says that the workforce system in the state is a distributed system that is working on both the local and regional level. She says that the state has significantly funded a jobs training initiative called the Virginia Jobs Investment Program (VJIP), which is a very effective simple turnkey job training solution.

The VJIP encourages the expansion of existing Virginia businesses and start-up of new business operations in Virginia. It helps offset recruiting and training costs incurred by companies that are either creating new jobs or implementing technological upgrades.

Research and development opportunities are a priority in King George County, where the University of Mary Washington opened a new campus in January in Dahlgren, its third satellite campus. The two-story, 42,000-square-foot facility was created to provide workforce development services to the nearby Naval support facility at Dahlgren, a large seven-command base of engineers, chemists and other scientists.

Nicole Thompson, director of economic development, King George Economic Development Authority, says that since the university just opened, they really haven’t moved forward on coming up with a strategic plan of what types of industries to target. “But there has been a lot of talk about research and wet labs and anything to support what is going on at the base,” she says.

Assets

Some of the greatest assets of Virginia are the eastern seaboard ports operated by the Virginia Port Authority (VPA). The VPA is responsible for the Norfolk International Terminals, Portsmouth Marine Terminal, and Newport News Marine Terminal, and an inland intermodal facility, the Virginia Inland Port located in Front Royal. These facilities primarily handle import and export containerized and break-bulk cargoes.

According to a 2008 report by the William and Mary Mason School of Business, the total Virginia economic activity produced or facilitated by the FY 2006 VPA port operations was revenues of $41.1 billion, with Virginia employee compensation of $13.5 billion to 343,001 employees. This economic activity generated state and local income, sales, and real property taxes amounting to an estimated $1.2 billion, plus other government fees and taxes.

Outdoors and Recreation

There are a lot of fun places for kids in the state, including thrill rides at Busch Gardens in Williamsburg; Eastern Shore Hang-gliding Center in Weirwood; and the National Air and Space Museum near Dulles Airport in Chantilly.

Lifestyle

In the New River Valley area, at 2,000 feet above sea level, there’s not the type of high humidity found at other seaboard areas, Bopp says. To highlight the amenities and lifestyle in the area, he tells the story of Inorganic Ventures, a family-owned business making customized certified reference materials, which invested more than $3 million and created 46 jobs in the area when they moved from New Jersey to the Falling Branch Corporate Park in Christiansburg because they were dissatisfied with the business climate in New Jersey. “This area appealed to the entire family, the owners and the children of the owners,” he says. The business is located minutes away from Virginia Tech, where the owner of the company can work with the chemical engineering department, and find the chemical engineering students and Ph.D.s needed to satisfy their workforce needs, Bopp says.

Virginia Beach is going through another transformation that was kicked off by the city’s investment in rebuilding the boardwalk a few years ago, Hall says. It’s now one of the top 10 public spaces in the country. There is significant new private development on the ocean front hotels and renovations to the resort area such as the Laskin Road Gateway project, with about $30 million in public improvements, and a $60 million private mixed-used development called Beach Centre at 31st Street. The project is scheduled to complete its last of four phases by September. “That will make the resort area more of a 365 day a year place and also increase the walkability of the resort area,” Hall says.

Povar says that the state plans to continue to have an aggressive international program, with a presence in India and China while also ramping up its European presence — all the while keeping an eye on the global economic developments.

However, the key metric to the economic health of the state is the government work. “There are some strategic federal agency decisions that will be made in the next couple of years and we want to win those,” Povar says.